08-08-2025
Defense shares lose steam amid rising hopes for Russia-Ukraine truce, overvaluation fears
Shares of South Korean arms makers dropped sharply Friday amid expectations that the upcoming US-Russia summit would include talks on a potential cease-fire in the Russia-Ukraine war. Concerns over valuation also contributed to the decline.
Shares of Hanwha Systems, a major defense affiliate of Hanwha Group, stood at 53,200 won ($39) as of 11 a.m., down 6.35 percent from the previous trading day.
During intraday trading, the share price of the defense firm with a roughly 10 trillion won market capitalization fell to as low as 52,800 won, marking a near 20,000 won drop from how it stood at the 52-week high of 70,200 won on June 18.
Other defense stocks also traded lower, with LIG Nex1 down 14.59 percent, Hanwha Aerospace down 5.15 percent, Hyundai Rotem down 5.29 percent and Korea Aerospace Industries down 3.42 percent.
LIG Nex1 shares plunged the day despite being added to the Morgan Stanley Capital International's Korea Index.
'The company is expected to achieve strong profit growth going forward. However, due to the recent sharp rise in the stock price, the short-term upside potential is limited,' analyst Jeong Dong-ho from Mirae Asset Securities said, following the brokerage firm's decision to downgrade the investment rating to neutral.
The shares dropped on expectations that US President Donald Trump and Russian President Vladimir Putin could hold a summit as early as next week and possibly discuss truce for the Russia-Ukraine war.
The plunge also comes amid concerns on overvaluation. Major defense stocks have surged between 70 percent and 300 percent since the beginning of this year.
While the projected price-to-earnings ratio for Lockheed Martin, a top US defense company, for this year stands at 19.6, major domestic defense stocks have been trade at significantly higher multiples, signaling a potential overvaluation.
Hanwha Systems posted a PER of 61, LIG Nex1 44.1, Korea Aerospace Industries 37.1, Hanwha Aerospace 32.1, and Hyundai Rotem 23.5, according to the Korea Exchange Thursday. High PER suggests a potential overvaluation compared to industry peers.
After a strong buying spree earlier this year, foreign investors have shifted to a net selling stance on defense stocks this month.
From Aug. 1 to 7, they offloaded 152.8 billion won worth of Hyundai Rotem shares, 71.2 billion won of Hanwha Aerospace, 65.9 billion won of Hanwha Systems, 49.5 billion won of LIG Nex1, and 3.3 billion won of Korea Aerospace Industries.
